ETRE 2008 – day 1, part 1. Tim Draper, Travis Katz, Rob Glaser and More

Globalisation. Well, it seems like an old theme, but the events in the financial sector this week have made us all much more aware that we are in a small interconnected world. Given that, it seems amazingly appropriate that ETRE should have started talking about globalization 18 meetings ago. Here at the 19th ETRE, the conversations are all about how we – the entrepreneurs – deliver balance in that world. That balance is all about the cost of globalisation for citizens, for governments and for investors.



Alex Vieux, President & CEO of Red Herring

Alan spoke eloquently about the “blockage” in the IPO, about the incredible lack of integrity in global merchant banks, and the collapse of the Roosevelt paradigms. The future, our future, in this post Credit Crunch world is all going to be about entrepreneurs, private capital and the fight back against the massive globalisation of nationalisation. This is the biggest state take over the tools of creation of wealth in history, and no one is ready to face the long term consequences of the state owning them. I have to agree with him: states have an appalling record of ownership. They have consistently failed to deploy the fabulous assets they have properly or for the benefit of their nations. Time after time, states have substituted huge corporate bonuses with huge kleptocratic regimes of bureaucrats.

So, the room was asked: “if everything we know has turned out to be wrong, where are we – the entrepreneurs going? How can we make wealth for people who are good at making more wealth?”(*) Are we capable of the societal transformation that is required to bring the broken system to a condition that works?

(* edit – no, not make wealth for the investors, make wealth for the entrepreneurs and tech employees who actually do stuff)

I have to say that the room went quiet. It is a really daunting task set before the world of technology business, their investors and their partners. What is clear, instantly, is that the old conflicts between investor and investee, and between advisor and executive pale into insignificance beside the needs of the community for co-ordinated action. One thing we are all going to have to do is work together an awful lot better.

Tim Draper of DFJ

TIm is probably the best known VC in the world. I've heard him talk a couple of times, but today he was on fire. I was blown away by his presentation of the “cost of pessimism”. He showed that $1000 invested in 1980 would yield $5000 on Tbills, $17k on stocks and $150k+ with a VC. Optimists get rich. They get real scared, and it takes more skills, but it makes more money. Period. Being a pessimist lowers your rate of return dramatically.

He also showed that big government costs it people dramatically. The bigger the government and the more control it exercises over business, the lower the average GDP per citizen State intervention makes people poorer. Period. And if a government slacks off its controls, people get richer. Every time. So the message is, if governments must interfere, they should do it as little as possible, and for as short a period as possible. His graph of government change in %GDP against rate of GDP growth shocked the room. The clear negative correlation was a massive surprise despite the lead in.

Tim is a bit right wing. Just a bit. “Let losers die” being a mantra. A GOP supporter, he put his finger right on the button of the way in which the governments in the West generated fear, uncertainty and doubt that actually caused the crash in the first place. His antipathy to “rights”, “rescues” and “entitlements” was a crowd pleaser. Chicken Little is the model for all of our current governments in the world; and in Tim's view they are leading us all into the foxes den of nationalization and poor returns.

Tim also pleased the crowd by telling us that only business makes thing better. At best, state intervention slows down the speed at which things get worse. He loves entrepreneurs and globalization, and the room had more than one happily exited entrepreneur who has reason to thank him.

So, on a clear field, Tim sees how exponential growth changes everything we understand. The foundation of entrepreneurship is the power of exponential growth based on fundamental capabilities driven by innovation. Moores law, Gene mapping, Websites, Blogpages, and clean tech, all show accelerating acceleration of capability. The effects are staggering, and it is those effects which – each and every time – have actually been released by entrepreneurs and their backers and (almost) never by governments.

On the subject of virality and the speed at which a small tech company can create $1bn, Tim was the best explainer I have heard on the subject. I'd certainly not going to explain what he said, as there is enough competition right now and we don't need any more of you to think you can do it.  The clue is in eliminating things that people do not like, and add one thing that people need. Taking apart Amazon, Skype, Google, Baidu, Ebay and Hotmail as examples, he gave us the best summary of how to change the world with an idea. It will be interesting to see where some of his start ups go: Reva, Tesla, Glam, KyteTV, Graspr and ContextWeb all demonstrate his business models in action and their success or failure will earn Tim his “right” to stand up in front of audiences in future.

For a man with his ego (he famously sent his own DNA into space so he could exist forever), he was remarkably charming and even funny. His future gazing was spot on. Not sure about the business uses of translators for the language of birds, but it seems like a really cool problem for someone to solve. And for a right-winger, he does not like greed. Greed and grasping are not ways to wealth. Serving others, that is how wealth is created. That made the room go totally silent. Incredible concept for business to take to heart.

So, how good is Tim? He is so good he got the whole room singing a new song. Literally. Singing a song. It takes a genius and a real leader to do that.

At the bottom of the world's worst financial crisis, Tim is an optimist because new solutions always emerge.

With no IPOs and the whole IPO pipeline blocked by SarbOx and 449a and the credit crunch, Tim is an optimist because the world is bigger than NASDAQ.

At the moment when many VCs doubt their futures, Tim is an optimist because the world exists beyond the blogger / VC communities of Silicon Valley and Boston.

With all that optimism, the one thing that was tough was the poor equity valuations in the market and the timing required to realise true values from the hard work of entrepreneurs and their investors and partners. While I came away from it being optimistic about the fundamentals, I did come away having severe doubts about the next year. I also came away thinking about short and medium term responses to the financial world's self-induced woes. But I did come away an optimist. And if more people become optimists, then we will all get richer, faster.

Alan Cane (FT.com) and Travis Katz (Fox, MySpace)

Fox, the arch conservative greed merchants (in the minds of many) actually came over really rather cool and optimistic. I'd say that there is a real risk that NewsCorp might actually be getting it. OK, IMHO MySpace  uses crappy, bad, ugly, webpages generated by people who cannot spell their own names, yet it thrives and is getting advertising revenue from its 120m active users. While it may go to show that there is no business reasons to assume anything about the intelligence and skill of your users, it also shows that a strong user base coupled with strong underlying undertanding of social dynamic and a healthy dose of innovation can create a heap of cash. Of the order of $800m of revenue and growing fast.  ($3bn to $4bn valuation on that profit means it is not a bad return on $580m invested!)

(edit – see Travis in optimsitic action with Rory Cellan-Jones here )

Does anyone remember where MySpace came from? How about eUniverse and those who used to own it? Are we no longer allowed to mention the original history? When people say it was founded in 2003, what about the prior life of YourZ and more? Anyhow, Alan did not touch on that, but he did deliver some tough questions and use his huge experience with grace and skill.

I'm not a big fan of these “walled garden” social networks. I find them parasitical, and they actively prevent people communicating freely and place costs and barriers in the way of normal commerce and normal communications. While they are replacing email to some extent, they also make it harder to get in touch with people, and suck valuable hours out of normal social lives. My gut feel is that they are large but temporary phenomenon that will ultimately fade, but, for now, they are huge and a real wealth creator. I look forward to anti-trust legislation to force them all to be open platforms once they reach a certain size, and when that happens, the real winners will be the consumers that interconnect. Time after time, big media has tried to force us to pay them to play in their walled gardens. Time after time those gardens have bloomed and died. Travis appeared to hint at more openess. Time will tell.

What was a nice surprise was how careful Fox are to shield the user from advertisers by rigorous privacy rules. The ad pressure is always to target the person, but Fox have come up with a privacy protected “hyper-targeting” system which actually appears to make sense. If it can double CPM's and add 3x click-throughs, then advertisers are going to love it and users are going to get less irrelevant crap served at them.

So, for now, it works, and there are some green shoots in terms of MySpace allowing users to take data outside the walled garden. I look forward to more of that. Travis, who I must say came over as a really great guy no matter who he works for, was at his best talking about what consumers love and what experience people are really looking for from their devices, websites and media. Warming to his theme, he touched on mobile internet as the next big thing, to become 50% of all MySpace traffic within a few years. As he noted that they are working with Apple and Blackberry on new devices, as well as on lots more Widgets to interact with other media sites, we can look forward to Travis making a real impact on the web, and, I hope, one that will be for good.

My take-aways:

1 – monetise from day one. A customer giving you a dollar is the best endorsement you can get for anything. (yeah, chanrge for free stuff. like MySpace didn't)
2 – innovate every day. Tomorrow someone else will have overtaken you. MySpace launches a new feature every 2 weeks, and new content every day.
3 – my personal prejudices are no guide to business success. 🙂
4 – M&A partners who realise you are doing something right are wonderful partners to find.

Rob Glaser

Rob is an ex-Microsofty who went off to power up RealNetworks. His relaxed and polite style belied his strength and forthrightness. Certainly, I'd place him on the “socially caring” and “power of trust” slightly to the left of centre of the scale compared to Tim. His scathing (but polite) review of recent banking behaviour was magnificent. <applause>!

I kind of swtiched off when he was sparking off Alex Vieux (Alex can take up too much air on the stage, but did make some big points).

Then my attention kicked back in when he described the problems that rights owners create for themselves. The stand up statistic was that music and movies are only substituting 30c of online revenue for every $1 they lose at retail. Strikes me I was right earlier on in this blog about the need to make stuff people want to pay for in a form people can pay for.

The idea of a “ring back tone” scares me, but only because I sometimes use the bus and am sick of listening to young people in hoodies playing them on their phones. Seems like a good “six figure profit” 100x growth business through. He is a solid, reasonable, cautious bloke. How is he going to survive this mad, mad, tech world post credit crunch? I suspect there is a lot he was not revealing at ETRE that make him pretty optimistic about Real and where they are going.

He gave a brilliant answer to “what would you not like to run?” and he said ” a big but underfunded company”. I have to agree. Cost saving is one answer, but runs the risk of 'aestivation', and capital raising is, to say the least, a little hard right now.

For Rob, some pessimism on a global scale is justified, but the digital future is, on balance, pretty good.

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